Tuesday, September 04, 2007

Globalization and Cultural Diversity

"If what can be seen in the cinemas and on television screens from Bangalore to Barcelona these days is any indication, globalization does not mean homogeneity. It means heterogeneity.

Instead of creating a single, boring global village, the forces of globalization are actually encouraging the proliferation of cultural diversity.

Instead of one voice, there are many. Instead of fewer choices, there are more. And instead of a uniform, Americanized world, there remains a rich and dizzying array of cultures, all of them allowing thousands of movies and televisions shows to bloom."

MP: There are many other examples of how globalization has not resulted in a uniform, Americaned world, but instead has resulted a richer, more culturally diverse world, including:

1. Think of the explosion of Jamacian reggae music around the world, including the U.S. and U.K., where it was embraced and supported, allowing it to thrive and prosper with a global market for new music.

2. Think of the explosion of ethnic restaurants around the U.S. - a Yellow pages search shows that there are now 54 Vietnamese restaurants and 75 Thai restaurants in Minneapolis-St. Paul, the epicenter of Midwest culture, traditionally Scandanavian, home of Garrison Keillor and the Prairie Home Companion Show, and about as far away from the East or West Coast as you can get (see Thai food above). As recently as the early 1980s, there were NO Vietnamese or Thai restaurants anywhere in the state of Minnesota, and probably almost none between Chicago and San Francisco.

3. Do a search on Ebay for "mola" and you'll find anywhere from 200-300 items for sale of the traditional textile art form made by the Kuna people of Panama and Costa Rica. Molas are cloth panels featuring complex designs made with multiple layers of cloth in a reverse appliqué technique (see photo above, click to enlarge). Most mola buyers are probably Americans who have recently developed an awareness and appreciation of a traditional art form due to globalization, and this art form is now much less likely to become extinct now that the Kunas have access to a global marketplace through Ebay.

Turn Your Car Into a Wireless Hotspot

It had to happen eventually didn't it? Well, now it's here: an Internet connection for your car.

"It's the ability to maintain the Internet-based lifestyle people live today," said Sterling Pratz, chief executive of Autonet, the first automotive Internet provider, in today's WSJ article about how cars, planes and maybe even trains are becoming wireless hot spots."

"Avis Car Rental has recorded thousands of rental days for the Wi-Fi boxes -- customers pay $10.95 a day to use the service. Passengers -- typically tourists -- who use the service surf the Web to find local restaurants or activities."

MP: How long will it take before there is a "no surfing while driving ordinance?"

Carpe Diem Finishes #6 for August Econ Blog Traffic

According to today's Gongol.com's Traffic Rankings for Major Business and Economics Websites, Carpe Diem broke into the Top 10 for the first time (see chart above, click to enlarge), finishing in 6th place for average daily page visits (based on August activity), just behind #5 Greg Mankiw! If Carpe Diem was a newspaper, it would have the readership of Phoenix's Arizona Republic. Thanks for your support! I was helped enormously in August by several CD postings that were featured on Reddit.com (like the one on $1500 houses in Detroit) and generated tons of activity, thanks to Reddit readers and posters!

Quote of the Day: The Magic of Government

Economist Thomas Sowell, commenting in his column todayabout how he survived for 30 years on a limited income with no health insurance, by paying cash for a broken arm, a broken jaw, a badly injured shoulder, and miscellaneous other medical problems:"This was all before politicians gave us the idea that the things we could not afford individually we could somehow afford collectively through the magic of government."

MP: Just a thought, but isn't all magic based on illusion, deception, misdirection, and sleight-of-hand?

Economic Freedom of the World 2007

TOP TEN BENEFITS OF ECONOMIC FREEDOM:1. Nations in the most-free quartile of economic freedom have an average per-capita GDP of $26,013, compared to $3,305 for those nations in the least-free quartile (see chart above). 2. Nations in the top quartile have an average per-capita economic growth rate of 2.25%, compared to 0.35% for the bottom quartile.3. In nations of the top quartile, the average income of the poorest 10% of the population is $7,334, compared to $905 for those in the bottom quartile.4. Life expectancy is 78.7 years in the most free quartile but 56.7 years in the bottom quartile.5. Nations in the top quartile of economic freedom have an average score of 1.8 for political rights on a scale of 1 to 7 (where 1 = the highest level), while those in the bottom quartile have an average score of 4.4.6. Nations in the most-free quartile of economic freedom have an average score of 1.7 for civil liberties on a scale of 1 to 7, where 1 marks the highest level, while those in the least-free quartile have an average score of 4.1.7. Nations in the top quartile of economic freedom have an average score of 81.0 (out of 100) for environmental performance, while those in the bottom quartile have an average score of 58.9.8. The infant mortality per 1,000 live births is 69.6 in the least-free quartile, compared to only 5.9 in the most-free quartile.9. The incidence of tuberculosis is 217.9 per 100,000 people in the least free quartile, compared to only 21.1 in the most free quartile. 10. Access to improved water sources and improved sanitation facilities is almost 100% in the most-free countries (99.2% and 97.5%), versus only 72.7% (water) and 53.5% (sanitation) in the least-free countries.

From the Economic Freedom of the World: 2007 Annual Report, released this morning by the Cato Institute, showing that economic freedom is on the rise globally. Bottom Line: More economic freedom is associated with higher incomes, greater economic growth, increased life expectancy, a cleaner environment, greater civil liberties, less corruption, greater foreign investment, increased sanitation and water, lower infant mortality, greater political freedom, and a lower incidence of life-threatening diseases like tuberculosis.

Outsourcing 101 for Dummies (Politicians)

"A lawmaker from Washington State might be told something like this: Indian outsourcing companies may funnel some Seattle-area technology jobs to India, but with the affluence that creates in India, more and more Indians are flying. That has made India a huge buyer of Boeing aircraft and thus a creator of jobs in the Seattle area, where Boeing does much of its manufacturing."

From today's NY Times article "Lobbying in U.S., Indian Firms Present an American Face." Here's more:In the heat of the 2004 presidential race in the United States, John Kerry compared outsourcing to treason, Lou Dobbs harangued against it on CNN and the Indian outsourcing vendors were left scrambling.As the 2008 campaign starts to pick up speed, the Indian outsourcing companies have returned to Washington as veritable insiders, slicker and better connected than ever.

They have hired a former official in the Bush administration as a lobbyist. They are humanizing the issue by bringing Americans they have hired into meetings with politicians. The Indian companies are mounting this effort out of fear that the pressures of the presidential election, and of the Democratic primaries especially, will induce candidates to lash out at Indian vendors.Bottom Line: India's National Association of Software and Service Companies (NASSCOM) now has to spend millions of dollars educating American politicians on the basic economic principles of how voluntary trade and outsourcing is a mutually beneficial and win-win outcome, and how the dollars spent on outsourcing in India end up getting spent back in the U.S. Shouldn't they have learned this in high school economics?

Monday, September 03, 2007

Canadian Medicine is Sick: MRI? Go to the Back of the 4 Mo. Line in Ontario, Even With Brain Tumor

First Lesson of Economics: We live in a universe of scarcity, and scare goods must be rationed efficiently. First lesson of Politics and Canadian Medicine: Ignore the first lesson economics. According to the first lesson of economics, scare goods MUST be rationed somehow. The most efficient way to ration scarce goods is with money - as crude as it sounds, it works, and in some cases it even saves lives, as this post illustrates (keep reading). The alternative is to ration scarce goods with time, e.g. waiting in line to buy "cheap goods" in the Soviet Union, or waiting in line to buy "cheap gas" during the 1970s in the U.S. under price controls.When it comes to critical health care, some people will die waiting in line when time is used to ration service.For example: how to ration MRIs? In Canada, MRIs are "free," so the scarce service must be rationed by waiting in line (time), with waits from 4.5 to 6.5 months in some Canadian provinces like Ontario and Newfoundland (see chart above, click to enlarge). In the U.S. we ration MRIs with money, and there really are no documented waiting times for American - do a Google search for "MRI waiting times in the U.S." and you'll find nothing. Just like there are really no waiting times to have your oil changed or brakes fixed, scarce services which are rationed with money.Exhibit A: I had my first MRI last week in the Flint, Michigan area because of prolonged neck and shoulder pain. From the time I left my initial appointment at my doctor's office to my scheduled MRI appointment, it was only 24 hours, i.e. I was able to schedule an MRI the very next day! When I asked if that was typical, the answer was yes, many MRIs can be scheduled within 24 hours, and certainly within a week. My case was fairly routine and I was still able to get an MRI within 24 hours in the U.S. Compare that to the experience of Canadian citizen Lindsay McCreith, who was told in 2006 that he probably had a brain tumor. His case was an emergency and he needed an MRI fast, but the wait time for a "free" MRI was 4.5 months in Ontario, and it's illegal to purchase a private MRI in Ontario. So he was told to get to the end of the MRI line with his suspected brain tumor and wait 135 days for his free MRI.

What to do? Lindsay contacted Timely Medical in Vancouver, a three-year old private medical broker in Canada, which got him an MRI the next day across the border in Buffalo, NY. Result? As suspected, he did indeed have a brain tumor the size of a golf ball. McCreith then was able to schedule brain surgery within a week in the U.S., surgery that would have taken eight months in Canada -- if Lindsay had still been alive. View a video clip here of Lindsay McCreith's ordeal with Canadian medicine, as he and his wife explain how U.S. medical care probably saved his life. Read a recent commentary "Uh-Oh Canada," which inspired this post, along with my personal experience about my first MRI in the U.S.

Harvesting Cash II

"Farmers" harvesting cash in Minneapolis-St. Paul, MN:"Farmers" harvesting cash in Chicago, IL:Further investigation of the EWG Farm Subsidy Database reveals that there are wealthy "farmers" harvesting cash from the taxpayers in all major urban areas, see maps above of Minneapolis-St. Paul and Chicago (click to enlarge). Note that the largest circles represent payments of more than $250,000 from 2003-2005, and the second largest circles are for payments between $100,000-$250,000, etc. In Minnesota, one out of every three recipients of federal farm subsidies live in either Minneapolis or St. Paul (1,831 out of 5,652 total for the state). In Illinois, more than 1,700 recipients of farm subsidies live in Chicago, which represents 25% of subsidy recipients in the state.

Sunday, September 02, 2007

55% of Imports are Inputs, Not Finished Goods

"While misguided (or disingenuous) politicians rail against the rising trade deficit, they fail to comprehend (or acknowledge) that U.S. producers are America's largest importers. In 2006, 55% percent of all U.S. goods imports were industrial products and components, the kinds of purchases made not by consumers, but by producers.

That statistic supports the strong correlation between manufactured imports and U.S. manufacturing output, which has been observed for decades. Imports and output rise and fall in tandem. Thus, policymakers who seek to restrain imports are effectively advocating a manufacturing recession. If their mercantilist worldview prevails, and imports decline, reports of idled factory equipment will not be far behind."

MP: Using data from the Bureau of Economic Analysis data, the chart above shows import data by "End-use Category," and confirms that 55% of imports to the U.S. ($504 billion) were either "Industrial Supplies and Materials" ($299 billion) like iron, steel, rubber, aluminum, tin, lumber, newsprint, chemicals, etc. or "Capital Goods, Except Automotive" ($205 billion) like industrial machinery, engines, tools, instruments, etc. The other 45% ($411 billion) of imports were consumer goods and food.

In other words, U.S. companies spend about $100 billion more on imported inputs ($504 billion) than consumers spend on final goods ($411 billion). This distinction is important because, when most people think about imports, we think about finished, retail consumer goods like Toyotas from Japan, toys or big screen TVs from China, etc., and don't realize that the majority of imports are inputs, raw materials and capital equipment for U.S. firms. Raising trade barriers with protectionist tariffs would create significant harm for U.S. companies and their employees by artificially raising the price of their inputs, putting them at a competitive disadvantage in an increasingly competitive global economy.

Bottom Line: Tariffs on imports are essentially punitive taxes on the inputs of U.S. producers, and if you tax something you'll get less of it, including fewer jobs for Americans working at U.S. companies buying inputs from abroad.

100% Chance of Rate Cut to 5% in September

For example, the Federal Open Market Committee (FOMC) meets in about two weeks, on September 12. What is the probably that the FOMC will cut its target Fed Funds rate from 5.25% to 5% at that meeting? Or maybe even to 4.75%? Using the Federal Funds Futures contracts, the probabilities are 100% of rate cut to 5%, and 73% chance of a rate cut to 4.75%. Here's why:

The October Fed Funds futures contracts settled at a price of 95.1150 on Friday (see chart above). The contracts are priced on the basis of 100 minus the average effective federal funds rate for the delivery month. Therefore, a price of 95.1150 for the October futures contract implies an expected Fed Funds rate of 4.885% for October. This implies that a .25% rate cut in the target Fed Funds rate, from 5.25% to 5% is already fully priced in to the futures contracts, meaning that markets expect at least a .25% rate cut with 100% probability at the September FOMC meeting.

Since the contracts are selling at a price to reflect a Fed Funds rate (4.885%) below 5%, there is also some probability that the Fed will cut rates by .50%. What is that probability?

The implied rate of 4.885% from the futures market is .365% below the current rate of 5.25% (5.25% - 4.885%), suggesting that there is a .365% / .50%, or 73% chance of a 1/2 point rate cut. Further, there is a .365% / .75%, or 46.8% chance of a 3/4 point rate cut in September.

Using the January Fed Funds futures contract, there is a 93% probability that the target Fed Funds rate will be down to 4.5% by early 2008.

Harvesting Cash in Manhattan?

Looks like maybe a map of subway stations in Manhattan? Well, the "sub" part is correct, but it's not a sub-way map of Manhattan, it's a farm sub-sidy map that I was able to generate from the Environmental Working Group's Farm Subsidy Database, showing Manhattanites receiving farm subsidies.Here's an interactive map of NYC that allows you to click on the red circles and find information about the individual recipients and where their farm is located.

According to National Review Online, "The red dots indicate people who live in Manhattan (and so clearly are neither hurting for money nor tilling the soil on the family farm) but receive agricultural subsidies from the federal government. The larger red blobs mark people receiving more than $250,000 in farm subsidies annually." The farm bill passed by House Democrats in July would continue giving millionaires farm subsidies (setting the income threshold for payments at $1 million a year, and keeping loopholes in place that allow some making much more to qualify). The Bush administration has proposed sharply reducing the income threshold to $200,000 a year and ending many of those loopholes. That would reduce the number of subsidy recipients by fewer than 40,000 (of the current million or so recipients)—though I suppose it might put some rooftop gardens on Park Avenue out of commission. MP: I'm speechless, I don't even know where to start my comments on this one. Help me out.

Safety Smackdown: China Say America Has Worms

The US and China appear to be determined to go blow for blow to determine who is the filthiest nation of them all. The latest playground-style broadside from China is that the US has worms.

China struck on Friday in its latest tit-for-tat on trade contamination with reports in the China Daily that inspectors had found microscopic worms in wooden packaging from the US and had uncovered substandard U.S. vitamin pills and fish oil for children.

Indian Hotels Now Want Rupees, Not Dollars

Reversing a 180-year trend (see chart above, click to enlarge) from 1822-2002, the USD has fallen by 17% vs. the Indian rupee in the last five years, from a high of Rs. 48.96/USD in May 2002 to Rs. 40.62/USD today, the lowest level for the dollar in more than nine years vs. the Indian rupee.

Result? Indian hotels now want rupees, not dollars. MUMBAI: On Saturday, most hoteliers across the country will move to a single currency pricing policy: room rates will be quoted in Indian rupees. Historically, hotels have followed a dual pricing system that allowed them to quote room rates in both US dollars - the universally accepted currency - and Indian rupees.With the weakening of dollar against the rupee, hoteliers feel there is more value for money earned in rupees and hence have decided to price their services in rupees. Read more here from The Times of India.(HT: Sanil Kori)

Financial Calcuator and Finance Excel Tutorials

Now that we're at the start of fall semester, college students might find these websites helpful for their finance classes:Financial Calculator Tutorials for all HPs, TIs and Sharp financial calculators. I have reviewed the tutorial for the HP-10BII calculator, which is used at the University of Michigan-Flint's School of Management for all of our finance classes, and I think it is excellent. Time Value of Money (TVM) Math, some parts of this site are under construction, but it provides good coverage of the mathematics of TVM. Time Value of Money Tutorial for Microsoft Excel, showing how to do financial calculations in Excel. Thanks to Matt Short.

China's Health Care: Cash Up Front, Lots of Drugs

If you are Chinese, or visiting China, try very hard NOT to get sick. Here's why:1. China has no system of general practitioners, so most people go to a hospital for health care.2. Most hospitals demand cash up front. Chinese people cannot get treatment, even for life-threatening illnesses, until they hand over money.3. Chinese hospitals have been turned into pharmacies on steroids, more than half their funding is from the sale of drugs. The system has in-built incentives for everyone to sell as many drugs as possible, including doctors, whose salaries are tied to prescription targets. It is no coincidence that one of the biggest corruption cases this year centred on the former head of the state food and drug administration, who was executed last month for taking bribes of $1m to approve new drugs.4. The most common prescription is for antibiotics, with devastating effect. The health ministry says that 70-90% of child pneumonia patients are resistant to drugs used to treat the disease, because of overuse of antibiotics.5. A Chinese journalist visited 10 hospitals this year and, pretending to be a patient, provided tea in the place of a requested urine sample. Six of the hospitals said they had discovered "blood cells" in the "urine" and immediately prescribed drugs.Read more in the Financial Times here. MP: China's health care system also has implications for China's trade surplus with the U.S. The fear of being financially crippled by falling ill is an important driver of the country's high savings rates, which in turn feeds the economy's bias towards investment and, more recently, with a large current account surplus, in favor of exports.Countries like Japan and China with high savings rates (and low consumption) typically have trade surpluses and countries like the U.S. with low savings rates (and low consumption) have trade deficits. Trade policies in the U.S. targeted at reducing the trade deficit with China will never work unless the underlying savings/consumption patterns are altered in both the U.S. and China. That is, unless the U.S. somehow becomes a high savings country, we'll continue to have a trade deficit, and unless China somehow beceomes a low savings country, it'll continue to have trade surpluses. Not likely during our lifetimes.

Friday, August 31, 2007

Who Gets The Most National Public Holidays?

Thursday, August 30, 2007

Buy Houses in Detroit for $1500, Monthly Pmt. = $7

You can go to Realtor.com and search for homes for sale in any city in the U.S., and you can specify a certain price range. If you search for homes for sale in Detroit, Michigan, you'll find that there are 22,387 homes for sale right now, and if you search for Detroit homes for sales between $0 and $20,000, you'll find that there are 3,431 homes for sale in that price range!

That is, more than 15% of the homes for sale in Detroit, or almost 1 out every 7 homes for sale, is priced at $20,000 or less, including the "Great Investment Property" pictured above, which is listed at a $1,500 sales price (negotiable?) with estimated monthly payments of only "$7 per month.""$7 for a monthly house payment," isn't that about what a single pack of cigarettes cost now?

Energizer Bunny Economy

The Commerce Department reported today that corporate profits strengthened in the second quarter, and hit an all-time high of $1.646 trillion on a before tax basis and $1.154 trillion after taxes (see chart above). Profits after taxes grew by 5.4% in the second quarter, after rising by 1.5% in the first quarter. Year over year, corporate profits increased by 3.5%.

During the last five years, corporate profits in the expanding U.S. economy doubled from $829 billion in 2002 to $1646 billion ($1.646 trillion) in 2007. Another way to think about it is to say that it took 220 years, from 1776 to 1996, before the U.S. economy was able to go from close to zero corporate profits to being able to generate $800 billion of corporate profits (not adjusted for inflation) in a year, and it then took only a 5 year period (2002-2007) for the U.S. economy's corporate profits to double from $800 billion to $1600 billion. Not bad for a "Rodney Dangerfield economy" that gets no respect from the media.

Another way to put U.S. corporate profits of $1.646 trillion in perspective is to compare it to world GDP figures. If the $1.646 trillion of profits generated by American businesses were considered to be a "country," the corporate sector of America would be the 8th largest country in the world, just slightly behind Italy, and larger than the entire economies of Canada, Spain, Brazil, Russia, and about twice the size of the entire economies of S. Korea, Mexico, India and Australia!

There has certainly been a lot of volatility in stock prices, but corporate profits in the "Energizer Bunny economy" are rising steadily and consistently, and have reached all-time historical highs in each of the last 6 years! Like the Energizer Bunny, corporate profits in the U.S. economy just keep going and going and going. UP.

Wednesday, August 29, 2007

Globalization: India's Tata Motors May Buy Jaguar

India's Tata Motors (NYSE:TTM) apparently wants to cover both ends of the vehicle market, and might soon be selling both the world's least expensive and the world's most expensive cars. In India, Tata Motors will introduce a new 4-door "1-lakh car" early next year, which is half the price of the lowest-priced cars on India's roads today and will be the cheapest car in the world. "1-lakh" rupees is 100,000 rupees, which is about $2,400 at the current exchange rate of 41 rupees per USD. Washington Post:The cheapest car in the world is being released during a time of good fortune for many Indians. While two-thirds of the country's population still struggles on $1 a day, millions of people here have emerged from grinding poverty into the lower middle class. The Asian subcontinent's largely service-based economy has been growing 8 to 9 percent a year, and World Bank studies estimate that India's middle class will expand from 50 million people today to more than 500 million by 2025.

Typical buyers of the 1-lakh car would include the millions of Indians who currently have a motorcycle or moped as the "family vehicle" (see the picture above; look closely and you'll see two adults and 4 children on one motorcycle!).

On the other end of the vehicle market, Tata wants to buy Ford's luxury brands Jaguar (pictured above is the new 2009 Jaguar XF, availabe in June 2008) and Land Rover.

Wall Street Journal: The acquisition, which could cost more than $1 billion, also would fit the Tata Group's plans to become one of India's first global brands and diversify its businesses overseas.

It is unlikely that Tata Motors will be able to sell many Jaguars or Land Rovers in India, but it could use the companies' technology and production facilities to improve its own cars and trucks. Tata Motors also would seek to use Jaguar's and Land Rover's international distribution networks to promote its own cars abroad.

The steel-to-software Tata Group is one of India's largest and most respected conglomerates. Its 96 companies employ about 200,000 people and have annual sales of more than $20 billion. The group has been leading a wave of Indian overseas investment as local companies have used the wealth generated in India's strong domestic economy to make acquisitions around the world.

Bottom Line: As India grows and prospers, and as its middle class increases by 5 times over the next several decades, India's consumers and companies will increasingly shop and invest globally, to the benefit of many U.S. companies.

Overwhelming Evidence III: Good Old Days Are Now

A century ago, the typical American household spent almost half of its income on food (46.4%, see chart above, click to enlarge), 14.7% on clothing and 15.1% on shelter, for a total of 76.2% on food, shelter and clothing in 1901, according to the Federal Reserve. As a result of significantly increasing incomes and declining real costs for food and clothing, the average American household today spends only 14% of its income on food, 5.3% on clothing and 18.4% on housing, for a total of 37.7% spent on food, clothing and shelter (see chart above).

By comparison, The Economist today reports that the typical household in India today spends 46% of its income on just food, which is more than the typical American household spends on food AND clothing AND shelter (as a share of income)! And the average Chinese household spends almost as much on food (33%) as the average American household spends on food, clothing and shelter.

This example provides more evidence that despite what many people think, our standard of living is higher now than ever before, and helps to illustrate the widespread "abundance denial" in America: Even though our standard of living has increased dramatically over the last century, and even though the typical American household has never had it so good, and even though the average American's standard of living is significantly better than almost anywhere else on the planet, and even though wealth, prosperity and abundance for the AVERAGE person is at an all-time historical high, "the media constantly dwell on minor problems without celebrating the broader, more upbeat context in which they exist."

Monday, August 27, 2007

Housing Inventories Up, Housing Sales Down

WASHINGTON -- Existing-home sales fell a fifth straight time during July (see top graph), while inventories of unsold property climbed (see bottom graph) and prices dropped.

Home resales declined to a 5.75 million annual rate, a 0.2% decrease from June's revised 5.76 million annual pace, the National Association of Realtors said Monday. June's rate was originally estimated at 5.75 million.

The median home price was $228,900 in July, down 0.6% from $230,200 in July 2006. The median price in June this year was $229,200.

Inventories of homes rose 5.1% at the end of July to 4.59 million available for sale. That represented a 9.6-month supply at the current sales pace. There was a 9.1-month supply at the end of June, revised from a previously estimated 8.8 months.

MP: There are currently 4.592 million homes for sale, which is 731,000 more than July 2006 (3.861 million) and twice as many for sale as 3 years ago (2.244 million in 2004). During the 2004-2007 period, the sales pace of existing homes has slowed by more than 15% from 6.778 million in 2004 vs. 5.75 million in July 2007. When you combine slowing housing sales with a growing inventory of homes for sale, you get more than a doubling of the "months supply of homes at the current sales rate," from 4.3 months in 2004 to 9.6 months in July 2007.

Irrational Restaurant Behavior?

Imagine that you're getting ready to go out to a restaurant with friends, and you're trying to decide whether to eat Mexican food or Thai food. To help make your decision, would you ever think of calling a phone number at random and asking a complete stranger for his or her advice on Mexican vs. Thai food? Probably not.

But once they get to a restaurant and are deciding on what to eat, why do many people frequently do almost the same thing: ask a complete stranger (the waiter or waitress) for his/her advice on what YOU should eat?

I have several good friends who can NEVER make a decision at a restaurant without asking a complete stranger (waiter or waitress) for help. Sometimes they will ask for general advice - "what's good here?" and other times they will narrow it down to Entree A and Entree B, and ask the server "which one do you recommend - A or B?"

This behavior seems completely irrational to me - why would you think that a complete stranger would have any relevant information about whether YOU would like walleye that evening instead of a steak? What you are really asking is what the SERVER would select if they were ordering their own meal, but why would you order something just because a complete stranger would order it? Just because a stranger prefers walleye over steak on a given evening doesn't mean that you will too.

Perhaps not quite so irrational is a line of questioning that goes something like this: "What entrees do people order the most of here?" " What feedback have you gotten from other customer on Entree X?" "Have you gotten any bad reports on Seafood Entree A tonight?" At least in those cases, you are trying to get feedback from a sample size of potentially many current and past diners, and not feedback from a sample size of N=1 (the server).

My thinking is that if I'm having a hard time deciding on what to eat, knowing intimately my subjective taste patterns, my likes and dislikes, my food choices over the last week that might affect my current choice of cuisine, etc., there is no information of value that I can get from a complete stranger that will help me order my food.

It is true that waiters and waitresses might have some inside information on some occassions that might help me decide, but I strongly object to irrational behavior (in my opinion) of people who constantly put value on the opinions of complete strangers when ordering food. In general, if you wouldn't pick a random name from the phone book and ask for advice on what you should eat or where you should eat, you should't ask a server for his or her advice on your food choice. Possible Solutions: 1) Ask you friends or spouse for food advice, they have more relevant information than a complete stranger, or 2) flip a coin to decide between Entree A and B, or 3) order a number of dishes to share, this works especially well at a Thai restaurant.

Decision-Making: Private vs. Public Sector

Suppose a private company had an opportunity to save $100 million annually by switching to a lower cost input without adversely affecting the quality of the final product. The switch would typically happen without hesitation. That's the definition of a "no-brainer."Suppose a government has an opportunity to save taxpayers $100 million annually by making coins (like pennies) with low-priced steel instead of making those coins with high-priced zinc (currently about 5 times the cost of steel), following Canada, U.K. and Europe, which have all made the switch to steel for their coins. The U.S. government deliberates what should be a "no-brainer," and takes no action. I guess that's called "politics" or maybe "no brains." According to a Forbes article, "With the price of zinc soaring amid a worldwide commodities boom (up +400% since 2003, see chart above), it costs the government almost 2 cents to make each 1-cent coin - a pretty penny considering roughly 8 billion new ones are placed into circulation annually."Now, who would you predict is most aggressively resisting the switch from zinc to steel for making pennies, saving taxpayers $100 million every year? As Walter Williams would say, if your answer is "the company that supplies zinc to the U.S. government for making pennies," you can go to the head of the class.

And that company is the Jarden Corporation (NYSE:JAH), whose stock has done quite well lately, much better than the rest of the market over the last 5 years, see chart below of Jarden (blue) vs. the S&P500 (red).

Another perfect example of how a well-organized, special interest group engages in lobbying and "rent-seeking" to hijack the political process in its favor, at the expense of the "rationally ignorant" voters/taxpayers. As H.L. Mencken pointed out, it's like "two foxes (the zinc lobby and Congress) and a chicken (voters/taxpayers) taking a vote on what to eat for lunch."

Sunday, August 26, 2007

Top 10 Best, Top 10 Worst Liveable Cities

From The Economist: With low crime, little threat from instability or terrorism and a highly developed transport and communications infrastructure, Canada and Australia are home to the most liveable destinations in the world. Four of the ten most liveable cities surveyed by the Economist Intelligence Unit are in Australia, and two of the top five are Canadian. Vancouver is the most attractive destination, with a liveability index of just 1.3% (see table above, click to enlarge).

World-Class Kenyans, World-Class Competition

For the last 30 years, the Crim Festival of Races has taken place in Flint, Michigan in late August. At some point about 20 years ago, the event started attracting the world-class, elite runners from Kenya and Ethiopia, who now compete annually for the $5,000 cash prize for first place in the 10-mile race. The racing event took place yesterday in Flint, and a Kenyan runner named FestusLangat (pictured above) became the 14th Kenyan in the last 17 years to win the Crim in 47:11, and Kenyans took the top 3 places, and 6 out of the top 8 places, with two Ethiopian runners finishing #4 and #5. Read more here in the Flint Journal.

After thinking about the dominance of the Kenyans, I submitted the following letter to the editor of the Flint Journal:

Foreign, world-class runners “imported” from Kenya once again dominated this year’s Crim, as FestusLangat became the 14th Kenyan in the last 17 years to win the 10-mile race, and he and his fellow Kenyans took 6 of the top 8 places. The world-class Kenyans unquestionably elevate the level of competition in the Crim, and help make it a world-class event for Flint.

Imagine your reaction if American runners started complaining about “unfair foreign competition” from the world-class Kenyans, and proposed new Crim rules banning Kenyans, limiting their numbers, or imposing 5-minute penalties on Kenyans “to level the playing field” for Americans. That reaction should be the same as when you hear American businesses complaining about “unfair foreign competition” from China or India, and they appeal to Congress for protectionist legislation to ban, limit or penalize foreign goods with quotas or tariffs, to “level the playing field.”

Just like restrictions on Kenyans in the Crim would significantly reduce competition and lower the quality of the event, there is overwhelming empirical evidence that restrictions on foreign imports reduce competition and lower our overall standard of living.

Saturday, August 25, 2007

Chart of the Day: World Stock Market Capitalization

The chart above (click to enlarge) shows the total capitalization of the world's stock markets, measured in trillions of US dollars, from Global Financial Data. During the 19-year period between 1980 and 1999, there was increase in world stock market value of $32.25 trillion, to about $35 trillion. In just the 5-year period between 2002 and 2007, there has been an increase in world stock market value of almost $35 trillion.

Bottom Line: There has been as much global wealth (measured by stock market value) created in the last 5 years ($35 trillion), as was created during the thousands of years it took to create the first $35 trillion (1999) of wealth. Not a bad record for globalization and the significant amount of wealth created in its wake.

Good News: Mortgage Rates Remain Low and Stable

The housing market woes have received a lot of attention lately, but the graph above (click to enlarge) suggests that it could be a lot worse if interest rates weren't so low and stable. Mortgage rates today at 6.52% (average this week) are a relative bargain compared to previous decades likes the 1970s when the average was 8.9%, the 1980s (avg=12.70%), and the 1990s (avg=8.12%). Since 2000, 30-year mortgage rates have averaged 6.49%, about where they're at right now, which is almost 3% below the 1971-2007 average.

As soft as the real estate market is right now, imagine what it would be like if mortgage rates were the average of 9.22% instead of 6.52%!

Friday, August 24, 2007

Raman Roy: The Father of Indian Outsourcing

Raman Roy (pictured above) has been referred to as the "father of Indian outsourcing," "one of the pioneers of the Business Process Outsourcing (BPO) industry in India," and "the father of India BPOs." In terms of his impact on the global economy, Raman Roy probably ranks in importance with figures like Bill Gates. Check him out here:

Exciting opportunity:Raman Roy is speaking to the Detroit Economic Club on Wednesday, September 12 in Birmingham, Michigan, on the topic "Harnessing Global Intellectual Capital to Create Corporate Value." I will be taking a group of University of Michigan-Flint students to the luncheon, free of charge (thanks to a corporate sponsor), and we will meet with Raman Roy before the luncheon in a private reception for students only. If you are a UM-Flint student and interested, please send me an email at your earliest convenience, this is an incredible opportunity and I'll do my best to accommodate as many students as possible, on a first-come, first-served basis!

Finnish Companies Outsource to India, Too

(CHENNAI) - The global-giant handset-maker Nokia (NYSE:NOK) plans to make its Chennai manufacturing plant a major nerve center. Nokia said it plans to make its manufacturing plant in India, now the second-largest market for its handsets, a global hub for exports. Nokia already exports to 58 countries from the India plant, and it is looking at the Chennai as a global plant for global operations. The world's largest handset maker by volume also said India has already over taken the U.S. to emerge as the largest market for Nokia handsets after China. India's mobile market is one of the fastest growing in the world, fueled by low tariffs and rising middle-class incomes.

MP: Note that India has now surpassed the U.S. in cell phone sales, at least for #1 Nokia, and is second only to China globally. Just like the "baby boom generation" in the U.S. had a major impact as it matured and moved through the U.S. economy, the emerging "middle class boom" in India and China will have a major impact on the global economy as it grows and matures. Quote: "The baby boomers are the rat that the snake swallowed. Through sheer numerical power, as it goes through the economy, the rat changes everything. If you have this big cohort, it changes all the institutions it goes through."Like the baby boomers in the U.S., the emerging middle classes in India and China will be the rats that change everything.

The Congressional Budget Office reported yesterday that the famously fearsome budget deficit is plummeting almost as fast as Congress's approval ratings (see top chart above, click to enlarge). The deficit this fiscal year is expected to be $158 billion, a meager 1.2% of GDP. Since the Bush tax cuts of 2003, the budget deficit has fallen by $217 billion mostly because of a continuing torrid pace of revenue growth.

More surprisingly, the richest 1%, 5% and 10% of the taxpayers are shouldering a larger percentage of the income tax burden at the federal level than the tax estimators said they would had the Bush tax cuts never materialized (see middle chart above).

With a few exceptions, tax rates in America have been steadily falling for the past 25 years starting with the Reagan tax cuts of 1981. When Ronald Reagan entered the Oval Office in 1981, the highest tax rates on income, capital gains and dividends were roughly twice as high as today. The top marginal income tax rate in 1981, for example, was 70% compared to 35% today. These tax rate reductions haven't meant that the rich have escaped paying their "fair share" of taxes or that the burden has shifted to the middle class. The opposite has occurred. Over the past 25 years tax payments by the wealthy have continually risen almost in inverse proportion to the tax rates, as shown by the surprising results in the bottom chart above.

The supply-side revenue effects on the rich are remarkable: Tax rates on higher incomes have been halved, but the federal tax share of the top 1% has nearly doubled. And the budget deficit has fallen. That's what happens when tax policy gets the incentives right.

Easily the most startling conclusion of his research: Mr. Sander calculated that there are fewer black attorneys today than there would have been if law schools had practiced color-blind admissions -- about 7.9% fewer by his reckoning. He identified the culprit as the practice of admitting minority students to schools for which they are inadequately prepared. In essence, they have been "matched" to the wrong school.

Mr. Sander's original article noted that when elite law schools lower their academic standards in order to admit a more racially diverse class, schools one or two tiers down feel they must do the same. As a result, there is now a serious gap in academic credentials between minority and non-minority law students across the pecking order, with the average black student's academic index more than two standard deviations below that of his average white classmate.

Not surprisingly, such a gap leads to problems. Students who attend schools where their academic credentials are substantially below those of their fellow students tend to perform poorly.

As a result, in elite law schools, 51.6% of black students had first-year grade point averages in the bottom 10% of their class as opposed to only 5.6% of white students. Nearly identical performance gaps existed at law schools at all levels. This much is uncontroversial.

Mr. Sander calculated that if law schools were to use color-blind admissions policies, fewer black law students would be admitted to law schools (3,182 students instead of 3,706), but since those who were admitted would be attending schools where they have a substantial likelihood of doing well, fewer would fail or drop out (403 vs. 670). In the end, more would pass the bar on their first try (1,859 vs. 1,567) and more would eventually pass the bar (2,150 vs. 1,981) than under the current system of race preferences. Obviously, these figures are just approximations, but they are troubling nonetheless.

Under current practices, only 45% of blacks who enter law school pass the bar on their first attempt as opposed to over 78% of whites. Even after multiple tries, only 57% of blacks succeed. The other 43% are often saddled with student debt, routinely running as high as $160,000, not counting undergraduate debt. How great an increase in the number of black attorneys is needed to justify these costs?

MP: One problem is that despite all of the potential problems from a "mismatch" between a law school's academic standard and the academic abilities of minority students, law schools are under extreme pressure to enroll minorities to maintain accreditation and student-loan eligibility.

Some admissions officer may be frantic to enroll minority students in order to comply with the stringent new diversity standards of the American Bar Association Council on Legal Education and Admissions to the Bar. As the federal government's accrediting agency for law schools, the ABA Council determines whether a law school will be eligible for the federal student-loan program. The law school that fails to satisfy its diversity requirements does so at its peril -- as a number of law school deans can amply attest.

Decades of law students have relied upon the good faith of law school officials to tell them what they needed to know. For the 43% of black law students who never became lawyers, maybe that reliance was misplaced.

MP: Although the article above focuses on the "academic mismatch" problem at law school, the same analysis applies to university programs in general. The chart above (click to enlarge) shows data at the University of Michigan-Ann Arbor for undergraduate students, except for the last column on graduation rates, which is national data. The UM data (pre-Proposal 2) are from the Center for Equal Opportunity and clearly illustrate the mismatch problem:

A black student with a 3.2 high school GPA and 1210 SAT score has a 92% of admission to UM vs. only a 14% for a white student. However, 1) black students (45%) are almost 6 times as likely as white students (8%) to be on academic probation at UM, and 2) and almost 2/3 of black students (64%) fail to graduate nationally in 6 years, vs. 42% for white students.

Homer's Quotes Now Appear in Oxford Dictionary

"Kids are the best, Apu. You can teach them to hate the things you hate. And they practically raise themselves, what with the Internet and all." "Kids, you tried your best and you failed miserably. The lesson is never try." London, Aug 22: The famous Homer Simpson will now be giving words of wisdom in the Oxford Dictionary of Modern Quotations. So far, Homer is probably been best-known for one remarkably straight-to-the-point quote - "D'oh!,” but now, Matt Groening, the man behind world's favourite cartoon series has 3 new entries in the latest volume of quotations from the experts at Oxford University (see 2 of the quotes above). The yellow-headed hero has secured the honour of appearing alongside literary luminaries like Winston Churchill and Oscar Wilde. (HT: Sanil Kori)

Throw Paper Game

Thursday, August 23, 2007

US (UK) Cancer Survival Highest (Lowest) in World

Despite Michael Moore's glorification of British health care and the NHS in the movie "Sicko," recent research shows that the cancer survival rates for men and women in the U.K. are the lowest in Europe, and significantly below the rates in the U.S. (see chart above, click to enlarge), which are the highest in the world.

From Britian's Telegraph: "Cancer survival rates in Britain are among the lowest in Europe, according to the most comprehensive analysis of the issue yet produced.

England is on a par with Poland despite the NHS spending three times more on health care.

Survival rates are based on the number of patients who are alive five years after diagnosis and researchers found that, for women, England was the fifth worst in a league of 22 countries. Scotland came bottom. Cancer experts blamed late diagnosis and long waiting lines."